Understanding an Online Merchant Account And Its Types

Initially started by big merchants, the concept of online merchant accounts has now disseminated to even the smaller merchants. It can truly unlock the power of your online business as its greatest asset is its ability to allow you to accept credit cards. Today, almost all business houses can be seen offering its services be it restaurants, spot shops or even any outlet. Let us understand what it is and its various types.

What is an online merchant account?

It is nothing but an account which facilitates any business house to accept payment across geographical boundaries in multiple manners with the most popular form being the debit or credit cards. The account is set up following an agreement between the acceptor and the merchant acquiring bank for processing the settlement of payment card transactions.

To explain it in simple terms, it is an online bank account where the payment made to the business house by any customer is held temporarily for a few days before it automatically gets transferred into the business house’s actual bank account held in any actual recognized bank. Thus, the merchant account can be thought of as a temporary holding tank for the money from any online monetary transaction.

Types of merchant accounts

There are broadly two types of merchant accounts – dedicated and aggregated.

  • A dedicated bank account is set up exclusively for a particular business house. This is quite similar to your own personal bank account which transacts money exclusively for your business. Merchant accounts set up through payment gateway sites like Authorize.net or PayLeap are dedicated accounts. These accounts allow you to negotiate custom rates for your sales which can be based on the volume of sales transacted or the type of products you sell. This account is terrific for all those business owners who require more control over their money as well as have the ability to negotiate custom rates. Procurement of such account typically requires an in-depth credit check and underwriting process. It takes the time to set up such account as you need to fax over your bank records and other crucial information about yourself and your business. As a general rule, it takes about two days here before the merchant account deposits the money into your actual bank account.
  • An aggregate merchant account has your money pooled with the money of numerous other companies. Major services providing aggregate merchant accounts are Stripe and PayPal. While your company information and the type of products you sell is also required to be documented here, the entire process of procuring this account is a lot faster and less complicated. On the flip side, you can neither negotiate rates nor have any say or control over the time duration after which your sales money will actually get deposited on your account. As a general rule, it takes about 7 business days before the money gets deposited in your account. There are accounts like PayPal, where you can hold your money for an infinite period of time. You need to put in your request for the money to be transferred to your bank account. It takes about 5 days on an average after putting the request that you would find the money getting deposited in your actual bank account.

PCI Compliance

No matter which type of merchant account you choose, it must be PCI Compliant. The PCI stands for Payment Card Industry Data Security Standard. It is an aggregate of security standards designed in such a manner that all companies that accept, process, store or transmit credit card information do so in a secure environment. It was launched on September 7, 2006, to improve payment account security throughout any of the transaction processes. It is administered and managed by the PCI SSC which is nothing but an independent body created by leading payment card brands like the Visa, Master Card, Discover, American Express and JCB. It must be emphasized here that its compliance is the responsibility of the payment brands and acquirers and not the PCI Council.